Industries Archives - Page 8 of 47

Opportunities and Challenges: Valuation in the Age of COVID-19

Estate & Wealth Transfer Planning|November 3, 2021

Valuation and estate planning go hand in hand. After all, the tax implications of various estate planning strategies depend on the value of your assets at the time they’re transferred.

The COVID-19 pandemic has had a significant impact on the value of many business interests and other assets, which may create some attractive estate planning opportunities. It also presents unique challenges for valuation professionals. As a result, it’s more important than ever to involve experienced valuation experts in the estate planning process.

What are the Opportunities?

With the value of many assets depressed (in many or most cases temporarily), now may be an ideal time to gift them, either directly to family members or to irrevocable trusts and other estate planning vehicles. Transferring assets while values are low also allows you to use as little of your gift and estate tax exemption as possible, maximizing the amount available for future gifts or bequests. As the economy fully recovers and assuming your asset values rebound, your beneficiaries should enjoy substantial growth outside your taxable estate.

What are the Challenges?

The pandemic has created a situation that’s truly uncharted territory for the valuation profession. Unlike other economic crises in recent years, most of the damage to the economy resulted from business closures and restrictions and other measures designed to help contain the virus.

For business valuations, the current environment presents several challenges, including:

Known or knowable. A fair market valuation generally doesn’t consider “subsequent events” — that is, events that occur after, and weren’t “known or knowable” on the valuation date. Experts generally agree that the COVID-19 pandemic wasn’t known or knowable as of December 31, 2019. Yet for valuation dates after that, determining whether the pandemic was known or knowable and should be considered in valuing a business or other asset can be a formidable task.

Valuation approaches. Generally, valuators consider all three of the major valuation approaches: the income, market and asset approaches. The pandemic may affect the relative appropriateness of each approach and the amount of weight they should be assigned.

For example, market-based methods, which rely on data about actual transactions involving comparable businesses, may be less relevant today if the underlying transactions predate COVID-19 (although it may be possible to adjust to reflect the pandemic’s impact).

Many valuators are emphasizing income-based methods, such as the discounted cash flow (DCF) method, which involves projecting a business’s future cash flows over a defined period (such as five years) and discounting them to present value. The advantage of DCF is that it provides a great deal of flexibility to model a business’s expected financial performance based on current conditions as well as assumptions about its eventual return to “normal” over the next several years.

Regardless of the method or methods used, it’s important for valuators to consider a business’s available cash and expected cash needs to assess its viability as a going concern. These considerations will be critical in evaluating a business’s risk and the impact of that risk on value.

What’s it Worth?

Depressed asset values can create attractive estate planning opportunities. While the pandemic has dropped the value of some assets, others haven’t been affected or have even increased in value. Contact us with questions regarding the valuation of your assets.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Getting Personal for Fundraising Success

Non-Profits|November 2, 2021

According to a recent survey conducted by fundraising platform FrontStream, the vast majority (87%) of Americans say they’re donating to charity in 2021. And almost 20% claim they’re giving more this year than they did in 2020. However, remaining uncertainty surrounding COVID-19 and the economy is making fundraising challenging for many not-for-profits right now.

Social media and mobile apps have made asking for donations easier in some ways. However, one of the most effective strategies for raising money remains the personal appeal. Donors consistently are more likely to give if the request comes from a friend, colleague or family member who’s committed to your mission. Use this fact to put your nonprofit on stronger financial footing.

Board Members are Usually Best

All of your organization’s stakeholders can promote your nonprofit and request support from their contacts. But development staffers aside, board members generally make the most effective fundraisers because they’re knowledgeable about your organization, passionate about your mission and typically have a wide range of contacts in business and philanthropic circles.

You can support their efforts by making sure they have the proper information and training. Consider equipping them with a wish list of specific items or services your nonprofit needs. Keep in mind that not all of their friends or family members may be in a position to make a monetary donation. However, some people may be able to contribute goods (such as auction items) or in-kind services (such as website maintenance).

Effective Methods

When making a personal appeal to prospective donors, your board members should, when possible, meet in person. Letters and email can save time, but face-to-face appeals are more effective. This is especially true if your nonprofit offers donors something in exchange for their attention. For instance, they’re more likely to be swayed at an informal coffee hour or cocktail gathering (contingent, of course, on local COVID-19 threats and restrictions).

It’s also important for board members to humanize your cause. Say that your nonprofit raises money for cancer treatment. If board members have been affected by the disease, they might want to relate their personal experiences as a means of illustrating why they support your organization’s work.

Even when appealing to potential donors’ philanthropic instincts, it’s critical to mention other possible benefits. For example, if your nonprofit is trying to encourage business owners to buy ad space in your newsletter, board members could explain that your supporters are a desirable demographic, both in terms of spending power and an eagerness to “buy local.”

Work Every Channel

Although personal appeals are extremely effective, don’t dismiss any fundraising technique — particularly if it’s low- or no-cost and is easy to use, such as social media. The most successful nonprofits work every available channel to increase interest and donations. Contact us to discuss your fundraising challenges and goals.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

4 Ways to Refine your Cash Flow Forecasting

Management Advisory Services & Business Consulting|October 26, 2021

Run a business for any length of time and the importance of cash flow becomes abundantly clear. When payroll is due, bills are piling up and funds aren’t available, blood pressure tends to rise. For this reason, being able to accurately forecast cash flow is critical. Here are four ways to refine your approach:

1. Know when you peak. Many businesses are cyclical, and their cash flow needs vary by month or season. Trouble can arise when an annual budget doesn’t reflect, for example, three months of peak production in the summer to fill holiday orders followed by a return to normal production in the fall.

For seasonal operations — such as homebuilders, farms, landscaping companies and recreational facilities — using a one-size-fits-all approach can throw budgets off, sometimes dramatically. To forecast your company’s cash flow needs and plan accordingly, track your peak sales and production times over as long a period as possible.

2. Engage in careful accounting. Effective cash flow management requires anticipating and capturing every expense and incoming payment, as well as — to the extent possible — the exact timing of each payable and receivable. But pinpointing exact costs and expenditures for every day of the week can be challenging.

Businesses can face an array of additional costs, overruns and payment delays. Although inventorying every possible expense can be tedious and time-consuming, doing so can help avoid problems down the road.

3. Keep an eye on additional funding sources. As your business expands or contracts, a dedicated line of credit with a bank can help you meet cash flow needs, including any periodic shortages. Interest rates on these credit lines, however, can be high compared to other types of loans. So, lines of credit typically are used to cover only short-term operational costs, such as payroll and supplies. They also may require significant collateral and personal guarantees from the company’s owners.

Of course, a line of credit isn’t your only outside funding option. Federally funded small business loans have been widely offered during the COVID-19 pandemic and may still be available to you. Look into these and other options suitable to the size and needs of your company.

4. Invoice diligently, run leaner. For many businesses, the biggest cash flow obstacle is slow collections. Be sure you’re invoicing in a timely manner and offering easy, convenient ways for customers to pay (such as online). For new customers, perform a thorough credit check to avoid delayed payments and bad debts.

Another common obstacle is poor resource management. Redundant machinery, misguided investments and oversized offices are just a few examples of poorly managed expenses and overhead that can negatively affect cash flow.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Nonprofit Restructuring has Become Easier, but Not Without Challenges

Non-Profits|October 20, 2021

A few years ago, IRS Revenue Procedure 2018-15 changed the rules regarding not-for-profit restructuring. If you’ve participated in a restructuring in the past, you’ll be relieved to know that in many cases it’s now easier. Even so, if recent challenges have led your organization to consider restructuring, it’s important to work with a professional advisor, such as a CPA.

That was Then

Under previous IRS rules, tax-exempt organizations were required to file a new exemption application when they made certain changes to their structure. Filing this application created a new legal entity.

To apply for new exempt status, nonprofits had to file a final Form 990 under their initial Employer Identification Number (EIN), obtain a new EIN and apply for exemption for the new entity. In addition to being a time-consuming and often expensive process, the new nonprofit risked failing to receive its tax-exempt status. The process also required changing the EIN on all bank and investment accounts.

This is Now

Now in many situations restructuring nonprofits are required only to report significant organizational changes on their Forms 990. To be eligible, the restructuring must satisfy certain conditions. Your organization must be:

A U.S. corporation or an unincorporated association,
Tax exempt as a 501(c) organization,
In good standing in the jurisdiction where it was incorporated or, in the case of an unincorporated association, formed.

And your reorganization must do one of the following: change from an unincorporated association to a corporation; reincorporate a corporation under the laws of another state after dissolving in the original state; file articles of domestication to transfer a corporation to a new state without dissolving in the original state; or merge a corporation with or into another corporation.

The “surviving” organization must carry out the same exempt purpose that the original organization did. For a 501(c)(3) organization, the new articles of incorporation must continue to satisfy the IRS’s organizational test that requires your nonprofit’s organizing documents to limit its purposes and use of its assets to exempt purposes.

Special Circumstances

Note that there are additional limitations. For example, the new rules don’t apply if your surviving organization is a “disregarded entity,” limited liability company (LLC), partnership or foreign business entity. Also, surviving organizations still have reporting obligations — for instance, to report the restructuring on any required Form 990 for the applicable tax year. And, these rules apply only to federal income tax exemptions. Your state’s laws could require you to file a new exemption application.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Associations Should Prioritize Common Interests, Not Individual Services

Non-Profits|October 5, 2021

Watch out, nonprofit trade associations! If your group is a 501(c)(6) organization, your activities could potentially threaten your tax-exempt status. To ensure you’re in compliance with IRS rules, you need to routinely review your member offerings and any business you might conduct.

Support Common Interests

Trade associations exist to promote their members’ common interests and improve business conditions or “one or more lines of interest.” Typically, associations get into trouble when they interpret terms such as “promote common interests” and “improve business conditions” too broadly. For example, they might provide customized sales training for only some of their members. But associations don’t qualify for tax-exempt status if they exist only to perform services for individual members.

Another potential violation is engaging in business that’s normally carried out on a for-profit basis. And groups that are primarily social or that exist to promote a hobby generally don’t qualify for 501(c)(6) status.

Don’t Favor Individual Members

To avoid IRS scrutiny, you must be able to differentiate between qualified and nonqualified activities. For example, you are generally allowed to:

Attempt to influence legislation relating to the common business interests of your members,
Test and certify products and establish industry standards,
Publish statistics on industry conditions to promote your members’ line of business, and
Research effective business practices to share with your members.

But you should limit activities if they benefit specific members rather than your industry or profession as a whole. These might include selling advertising in member publications; facilitating the purchase of supplies for members; and providing workers’ compensation insurance to members. Your association’s “primary purpose” is key. Most 501(c)(6) groups perform some activities that don’t primarily serve common interests. But these activities should be limited in scope and number.

Be Careful with Unrelated Business

Even when certain activities don’t threaten your exempt status, performing services for members can trigger unrelated business income tax (UBIT). Typically, members pay for such services directly, instead of through dues or other common assessments. Depending on the services your association provides and the revenues raised, additional reporting may be required and you may owe UBIT.

Stop and reassess if you’re performing more services, or more substantial ones, for individual members. Instead, you might want to consider forming a separate for-profit organization to offer those services.

Observing Limits

It’s not always easy to differentiate between acceptable and unacceptable association activities. To help you remain on the right side of the IRS and preserve your tax-exempt status, contact us with questions.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Is a Health Savings Account Right for You?

Tax Prep, Planning & Strategy|September 30, 2021

Given the escalating cost of health care, there may be a more cost-effective way to pay for it. For eligible individuals, a Health Savings Account (HSA) offers a tax-favorable way to set aside funds (or have an employer do so) to meet future medical needs. Here are the main tax benefits:

Contributions made to an HSA are deductible, within limits,
Earnings on the funds in the HSA aren’t taxed,
Contributions your employer makes aren’t taxed to you, and
Distributions from the HSA to cover qualified medical expenses aren’t taxed.

Who’s Eligible?

To be eligible for an HSA, you must be covered by a “high deductible health plan.” For 2021, a high deductible health plan is one with an annual deductible of at least $1,400 for self-only coverage, or at least $2,800 for family coverage. For self-only coverage, the 2021 limit on deductible contributions is $3,600. For family coverage, the 2021 limit on deductible contributions is $7,200. Additionally, annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits can’t exceed $7,000 for self-only coverage or $14,000 for family coverage.

An individual (and the individual’s covered spouse) who has reached age 55 before the close of the year (and is an eligible HSA contributor) may make additional “catch-up” contributions for 2021 of up to $1,000.

HSAs may be established by, or on behalf of, any eligible individual.

Deduction Limits

You can deduct contributions to an HSA for the year up to the total of your monthly limitations for the months you were eligible. For 2021, the monthly limitation on deductible contributions for a person with self-only coverage is 1/12 of $3,600. For an individual with family coverage, the monthly limitation on deductible contributions is 1/12 of $7,200. Thus, deductible contributions aren’t limited by the amount of the annual deductible under the high deductible health plan.

Also, taxpayers who are eligible individuals during the last month of the tax year are treated as having been eligible individuals for the entire year for purposes of computing the annual HSA contribution.

However, if an individual is enrolled in Medicare, he or she is no longer eligible under the HSA rules and contributions to an HSA can no longer be made.

On a once-only basis, taxpayers can withdraw funds from an IRA, and transfer them tax-free to an HSA. The amount transferred can be up to the maximum deductible HSA contribution for the type of coverage (individual or family) in effect at the transfer time. The amount transferred is excluded from gross income and isn’t subject to the 10% early withdrawal penalty.

Distributions

HSA Distributions to cover an eligible individual’s qualified medical expenses, or those of his spouse or dependents, aren’t taxed. Qualified medical expenses for these purposes generally mean those that would qualify for the medical expense itemized deduction. If funds are withdrawn from the HSA for other reasons, the withdrawal is taxable. Additionally, an extra 20% tax will apply to the withdrawal, unless it’s made after reaching age 65 or in the event of death or disability.

As you can see, HSAs offer a very flexible option for providing health care coverage, but the rules are somewhat complex.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Even Nonprofits can Benefit from AI Technology

Non-Profits|September 23, 2021

You might think that artificial intelligence (AI) is just about using computers to perform complex tasks that otherwise would require human intelligence. That’s part of AI. But several technologies fall under the AI umbrella, including machine learning, natural language processing (NLP) and robotic process automation. Here’s how tools such as these can help nonprofits cut costs and achieve mission-critical objectives.

Offering more

The term “AI” is sometimes confused with data analytics or the application of intense mathematics. But AI can be used in everyday applications that enable nonprofits to improve program efficacy.

For example, the Crisis Text Line in New York has used AI to analyze millions of text messages to determine the words most associated with a high risk of suicide in the sender. And various animal welfare and environmental organizations have employed AI to combat poaching. PAWS, for example, uses modeling and machine learning to provide park rangers with information that helps them predict and prevent poachers’ actions. Global Fishing Watch has analyzed billions of messages from fishing boats to identify illegal industrial fishing ships.

Health-focused organizations also have adopted AI technologies. For example, Parkinson’s UK has unleashed AI to plow through reams of existing research data to fast-track new treatments.

Putting it into practice

Your nonprofit might be able to use AI in the following areas:

Fundraising. Machine learning can help you analyze your current donor database and develop models that predict donor behavior. For example, chatbots that simulate conversation might handle smaller donations while directing more complicated contributions to humans.

Human resources. AI software can expedite the hiring process. For instance, it can narrow the field and save interviewing time, freeing up HR staff to deal with other issues. AI also might reduce the risk of discrimination claims because human subjectivity may play less of a role in the process.

Communications. Chatbots, NLP and other tools make it easier to maintain efficient and effective communications with internal and external stakeholders — including potential donors and volunteers. You might be able to automate board packets and donation requests to ensure the timely delivery of information.

Worth considering

The initial investment required for AI may seem difficult to justify in uncertain economic times. However, because most nonprofits have similar operational needs, AI developers have created off-the-shelf solutions that can be customized. Grants or collaborative efforts with other nonprofits could also help your nonprofit pay for AI technology.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Think like a Lender before Applying for a Business Loan

Management Advisory Services & Business Consulting|September 21, 2021

Commercial loans, particularly small business loans, have been in the news over the past year or so. The federal government’s Paycheck Protection Program has been helpful to many companies, though fraught with administrative challenges.

As your business pushes forward, you may find yourself in need of cash in the months ahead. If so, more traditional commercial loan options are still out there. Before you apply, however, think like a lender to be as prepared as possible and know for sure that the loan is a good idea.

4 basic questions

At the most basic level, a lender has four questions in mind:

How much money do you want?
How do you plan to use it?
When do you need it?
How soon can you repay the loan?

Pose these questions to yourself and your leadership team. Be sure you’re crystal clear on the answers. You’ll need to explain your business objectives in detail and provide a history of previous lender financing as well as other capital contributions.

Lenders will also look at your company’s track record with creditors. This includes business credit reports and your company’s credit score.

Consider the three C’s

Lenders want to minimize risk. So, while you’re role-playing as one, consider the three C’s of your company:

1. Character. The strength of the management team — its skills, reputation, training and experience — is a key indicator of whether a business loan will be repaid. Strive to work through natural biases that can arise when reviewing your own performance. What areas of your business could be viewed as weaknesses, and how can you assure a lender that you’re improving them?

2. Capacity. Lenders want to know how you’ll use the loan proceeds to increase cash flow enough to make payments by the maturity date. Work up reasonable cash flow and profitability projections that demonstrate the feasibility of your strategic objectives. Convince yourself before you try to convince the bank!

3. Collateral. These are the assets pledged if you don’t generate enough incremental cash flow to repay the loan. Collateral is a lender’s backup plan in case your financial projections fall short. Examples include real estate, savings, stock, inventory and equipment.

As part of your effort to think like a lender, use your financial statements to create a thorough inventory of assets that could end up as collateral. Doing so will help you clearly see what’s at stake with the loan. You may need to put personal assets on the line as well.

Gain some insight

Applying for a business loan can be a stressful and even frustrating experience. By taking on the lender’s mindset, you’ll be better prepared for the process. What’s more, you could gain insights into how to better develop strategic initiatives.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Give your Staffers a Break with an Accountable Plan

Non-Profits|September 15, 2021

Accountable plans reimburse employees for work-related expenses free of federal income and employment taxes. So reimbursement payments aren’t subject to withholding from staffers’ paychecks. Your not-for-profit also benefits because the reimbursements aren’t subject to the employer’s portion of federal employment taxes.

Most prospective employees probably won’t accept a job based on the availability of an accountable plan. But offering one can help you retain valuable workers who submit frequent reimbursement requests.

What’s Covered?

The IRS stipulates that all expenses covered in an accountable plan have a business connection and be “reasonable.” Additionally, employers can’t reimburse employees more than what they paid for any business expense. And employees must account to you for their expenses and, if an expense allowance was provided, return any excess allowance within a reasonable time period.

Examples of expenses that might qualify for a tax-free reimbursement through an accountable plan include tools and equipment, home office supplies, dues and subscriptions. Certain meal, travel and transportation expenses also qualify.

Informal Documentation

How do you establish an accountable plan? It isn’t required to be in writing. But formally documenting your plan makes it easier for your nonprofit to prove its validity to the IRS if it’s challenged.

When administering your plan, your nonprofit is responsible for identifying the reimbursement or expense payment and keeping these amounts separate from other amounts, such as wages. The accountable plan must reimburse expenses in addition to an employee’s regular compensation. No matter how informal your nonprofit, you can’t substitute tax-free reimbursements for compensation that employees otherwise would have received.

Keep Good Records

The IRS also requires employers with accountable plans to keep good records for expenses that are reimbursed. This includes, to the extent applicable, documentation of:

The amount of the expense and the date,
Place of the travel, meal or transportation,
Business purpose of the expense, and
Business relationship of the people fed.

You also should require employees to submit receipts for any expenses of $75 or more and for all lodging unless your nonprofit uses a per diem plan.

Simple Process

Because plans don’t have to be formal, they’re relatively simple to establish. As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Reaping the Benefits of Cause Marketing

Non-Profits|September 2, 2021

Starbucks, Nike, Pepsi, Uber and scores of other major companies regularly use cause marketing to burnish their image and reach customers. The not-for-profit organizations that partner with these companies can reap multiple benefits, including financial support and raised awareness of their mission. Cause marketing can take many forms, so it’s important to find both the partner and form that match your nonprofit.

How is Cause Marketing Different?

Cause marketing is different from a tax-deductible donation or corporate charitable giving program. When a cause marketing partner provides your organization with funds or services, it’s ideally rewarded with an enhanced public image, greater customer loyalty and other marketing advantages.

With this kind of corporate financing and business expertise backing your nonprofit, you might be able to increase your visibility and educate new audiences about your cause. As members of the public become acquainted with your mission, you can probably expect your volunteer and donor ranks to grow. And new connections with your corporate partner’s customers, vendors, employees and other stakeholders can open up all kinds of avenues for growth.

What Forms Does it Take?

Cause marketing takes several forms. For example, transactional giving programs typically involve online platforms such as iGive and AmazonSmile that enable shoppers to donate a dollar amount or percentage of each purchase to their chosen charities. Or donors may be able to convert customer-loyalty program rewards (such as airline miles) into cash contributions.

Another form is message promotion, where a company uses its resources to promote a cause-focused message — usually one related to its own products. Early in the COVID-19 pandemic, The Body Shop launched its “Time to Care” campaign, which used social media to promote self-care and celebrate health care workers. As part of the initiative, the company partnered with shelters and assisted living communities, donating money and cleaning supplies.

Licensing agreements are another option. A company may pay to use your not-for-profit’s name and branding on its products. For example, AARP has, over the years, licensed its name to several insurance and health care companies. Because these partnerships can have legal complications, they’re recommended for larger, more sophisticated nonprofits.

How do you Get Started?

Before entering into a cause marketing agreement, carefully research potential partners and partnership forms. Be sure to work with an attorney to negotiate terms with partners and draft agreements.

As always, please do not hesitate to call our offices for additional information and to speak to your representative for help determining the financial potential of cause marketing and the possible tax consequences.

What are the Opportunities?

What are the Challenges?

What’s it Worth?

Board Members are Usually Best

Effective Methods

Work Every Channel

That was Then

This is Now

Special Circumstances

Support Common Interests

Don’t Favor Individual Members

Be Careful with Unrelated Business

Observing Limits

Who’s Eligible?

Deduction Limits

Distributions

Offering more

Putting it into practice

Worth considering

4 basic questions

Consider the three C’s

Gain some insight

What’s Covered?

Informal Documentation

Keep Good Records

Simple Process

How is Cause Marketing Different?

What Forms Does it Take?

How do you Get Started?

Our Services

Our Industry Expertise

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